Santhosh Kumar v. State of Kerala, Rajeevan T., Official Liquidator

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS** **WEDNESDAY, THE 25TH DAY OF OCTOBER 2017/3RD KARTHIKA, 1939** ## **Crl.MC.No. 7324 of 2017 ()** **--------------------------ST.NO. 192/2015 OF JUDICIAL FIRST CLASS MAGISTRATE COURT, PAYYOLI** **------------------** ## **PETITIONER/2ND ACCUSED:** **-------------------------------------------** **SANTHOSH KUMAR, (EX.) MANAGING DIRECTOR, M/S. SREEKOVIL CHITS COMPANY (P) LIMITED, GRAND BUILDING, MAIN ROAD, KALPETTA, WAYANAD DISTRICT.** **BY ADVS.SRI.SANJAY THAMPI SRI.LIJIN THAMBAN SRI.M.RETHEESHKUMAR** ## **RESPONDENT(S)/COMPLAINANT:** **------------------------------------------------** **1. STATE OF KERALA, REPRESENTED BY PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM-682 031** ## **2. RAJEEVAN. T.,** **AGED 47 YEARS, S/O. KUNHIRAMAN NAIR, THATHOTH HOUSE, KEEZHPAYUR POST, MEPPAYUR VIA, KOYILANDY TALUK-673 305** ## **3. OFFICIAL LIQUIDATOR,** **HIGH COURT OF KERALA, IN THE MATTER OF M/S. SREEKOVIL CHITS PRIVATE LIMITED. PIN-673 305** **R1 BY PUBLIC PROSECUTOR SRI.JESTIN MATHEW R3 BY ADV. SRI.K.MONI** **THIS CRIMINAL MISC. CASE HAVING COME UP FOR ADMISSION ON 25-10-2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **sts** ## **Crl.MC.No. 7324 of 2017 ()** **--------------------------------------** ## **APPENDIX** **PETITIONER(S)' ANNEXURES: ---------------------------------------------** **ANNEXURE A1 COPY OF THE COMPLAINT FILED BY THE 2ND RESPONDENT BEFORE THE JUDICIAL FIRST CLASS MAGISTRATE COURT, PAYYOLI BEARING S.T.NO. 192/2015.** **ANNEXURE A2 COPY OF CHEQUE BEARING NO. 035693 OF RS. 45,330/- DRAWN ON CORPORATION BANK, THIRUVALLUR BRANCH.** **ANNEXURE A3 COPY OF THE CHEQUE RETURN MEMO.** **ANNEXURE A4 CERTIFIED COPY OF ORDER DATED 11.04.2017 IN M.C.A NO. 7/2017 IN C.P. NO. 8/2011.** **RESPONDENT(S)' ANNEXURES:** **NIL** **-----------------------------------------------** **/TRUE COPY/** **P.S.TO JUDGE** **sts** ## **ALEXANDER THOMAS, J.** ================== Crl.M.C.No. 7324 of 2017 ================== Dated this the 25[th] day of October, 2017 ## **O R D E R** The petitioner has been arrayed as accused No.2 for offence punishable under Sec.138 of the Negotiable Instruments Act in Anx.A-1 complaint in S.T.No.192/2015 on the file of the Judicial First Class Magistrate's Court, Payyoli, instituted on the basis of the complaint filed by the 2[nd] respondent herein. The dishonoured cheque involved in this case is for Rs.45,330/-. According to the 2[nd] respondent complainant, he was a subscriber of a chit conducted by accused No.1 company [M/s.Sreekovil Chits Company (P) Ltd.] and that amounts were owed to him from the said company and in discharge of the said liability, accused No.3, the manager of the chit company at Thiruvallur, had issued and handed over the instant cheque for the abovesaid amount, which when presented resulted in dishonour and that the cheque has been drawn from the account maintained accused No.1 chit company. Accused No.2 (petitioner) and accused No.3 have been arrayed as co-accused on the basis of the vicarious liability in terms of Sec.141 of the Negotiable Instruments Act. The prayer in this Crl.M.C. is to quash the impugned complaint to the limited extent the same is directed as against the petitioner ( A-2) herein. 2. In the instant case the accused company was wound up as per order 23.9.2011 passed by the company court in C.P.No. 8/2011, which was Crl.M.C.7324/17 - : 2 :- filed on 21.3.2011. Going by the averments in the complaint it appears that the incidents relating to the issuance and dishonour of the cheque were all in the year 2010. Earlier the petitioner had approached the company court by filing M.C.A.No.7/2017 in C.P.No.8/2011 with the prayer that all further proceedings in the present impugned criminal complaint should be stayed by virtue of the enabling powers under Sec.456 of the Companies Act, 1956. This Court dismissed the said application as per Anx.A-4 order dated ## 11.4.2017, which reads as follows: _“The prayer in this M.C.A. is for a direction from this Court to stay all further proceedings in S.T.No.195/2015 pending on the file of the Judicial First Class Magistrate's Court, Payyoli. The petitioner in this M.C.A. is an ex-director of the above company (in liqn.). The said petitioner is also accused for the offence punishable under Sec.138 of the Negotiable Instruments Act in the aforementioned S.T.No.195/2015 pending on the file of the Judicial First Class Magistrate's Court, Payyoli, instituted on the basis of the complainant filed by the 2[nd] respondent herein._ _2. Heard Sri.Sanjay Thampi, learned counsel appearing for the applicant, Sri.K.Moni, learned Standing Counsel appearing for the Official Liquidator and Sri. Jestin Mathew, learned Prosecutor appearing for the State. In the nature of the orders proposed to be passed in this M.C.A., notice to R-2 complainant will stand dispensed with._ _3. This Court in the judgments as in_ _**K.P.Devassy v. The Official Liquidator** , reported in 1997(2) KLJ 243 and_ _**Jose Antony Kakkad v. Official Liquidator & Anr** , reported in 1998 Crl.L.J.4095 has categorically held that prosecution by the director of a company (in liqn.) for offence punishable under Sec.138 of the Negotiable Instruments Act is not liable to be stayed by taking recourse to the provisions contained in Sec. 446 of the companies Act, 1956. So also, a Division Bench of this Court in the judgment in_ _**Jose Antony Kakkad v. Official Liquidator** , reported in 2000 (1) KLJ 757, has held that criminal proceedings under Sec.138 of the Negotiable Instruments Act are not primarily in respect of the assets of the company, and so such criminal proceedings cannot be stayed by taking recourse to the provisions contained in Sec. 446 of the Companies Act._ _Faced with this situation, Sri.Sanjay Thampi, learned counsel appearing for the applicant would submit that in case this Court is dismissing the present M.C.A., then this Court may grant liberty to the applicant to raise all his contentions in an appropriate application to be filed under Sec.482 of the Code of Criminal Procedure or any such other appropriate proceedings. In the light of these aspects, the aforecaptioned M.C.A. stands dismissed with liberty to the applicant to work out his remedies strictly in accordance with law.”_ Crl.M.C.7324/17 - : 3 :- 3. Heard Sri.Sanjay Thampi, learned counsel appearing for the petitioner, Sri.Justin Mathew, learned Prosecutor appearing for R-1 State and Sri.K.Moni, learned Standing Counsel appearing for the 3[rd] respondent Official Liquidator. In the nature of the order that is proposed to be passed in this petition, notice to R-2 (complainant) will stand dispensed with. 4. The main contentions raised by the petitioner are to the effect that even if is it assumed that all the allegations in the impugned Anx.A-1 complaint are taken in its face value, then allegations therein are raised as against accused No.3 only and that the complainant has not raised any allegation against the petitioner in the impugned Anx. A-1 complaint and that the petitioner has not executed and issued the alleged cheque and that the 2[nd] respondent is not having any case that the alleged cheque was executed and issued by the petitioner. Further it is contended that even if it is alleged that the cheque issued from the company's account has been dishonoured, then it is mainly for the company to pay the fine/ compensation amount and that the company is now under liquidation and it is for the persons like the complainant to approach the company court or the 3[rd] respondent Official Liquidator to stake their claims, as creditors, etc. 5. As regards the the first contention, it can be seen that it is clearly stated in para 4 on page 3 of Anx. A-1 complaint that “ _..... The cheque was signed by accused No.2....._ ” Further, from a perusal of Anx. A-2 dishonoured cheque it is seen that the seal placed immediately after the Crl.M.C.7324/17 - : 4 :- signature of the signatory therein is as follows: _“For Sreekovil Chits Co. Pvt. Ltd. Managing Director.”_ Further, it is stated in the complaint that accused No.2 (petitioner) was the Managing Director of the company at the relevant time. 6. The 3-Judge Bench of the Apex Court in the celebrated judgment in _**S.M.S. Pharmaceuticals v. Neeta Bhalla & Anr**_ . reported in (2005) 8 SCC 89, has held that there should proper and necessary averments in the complaint stating that the co-accused directors/partners/officials of the company/partnership firm, as the case may be, were in charge of and responsible for the affairs of the business of the company at the time of commission of the offence, in cases where the dishonoured cheque has been issued from an account maintained by the company/partnership firm, as the case may be. The three main questions, which have been dealt with and answered by the 3-Judge Bench in _**S.M.S. Pharmaceuticals' case**_ supra, are referred to in paras 1 and 19 of the said decision, which read as follows: _'This matter arises from a reference made by a two-Judge Bench of this Court for determination of the following questions by a larger Bench:_ _“(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfil the requirements of the said section and it is not necessary to specifically state in the complaint that the person accused was in charge of, or responsible for, the conduct of the business of the company._ _(b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary._ Crl.M.C.7324/17 - : 5 :- _(c) Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the managing directors or joint managing director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against.”_ **==> picture [158 x 6] intentionally omitted <==** _**19.** In view of the above discussion, our answers to the questions posed in the reference are as under:_ _(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied._ _(b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases._ _(c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.”_ Later, the Apex Court in the judgment in _**National Small Industries**_ ## _**Corporation Ltd. v. Harmeet Singh Paintal and Anr**_ . reported in (2010) 3 SCC 330, has held in para 39 thereof (pp.345-356 of SCC report) as follows: _“39. From the above discussion, the following principles emerge:_ _(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no_ Crl.M.C.7324/17 - : 6 :- _presumption that every Director knows about the transaction._ _(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company._ _(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with._ _(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred._ _(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with._ _(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint._ _(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.”_ Thus it has been clearly held in para 39(v) of the judgment of the Apex Court in the abovesaid judgment in _**National Small Industries Corporation Ltd.'s case**_ supra that if the accused is the Managing Director or a Joint Managing Director of the drawee company, then it is not necessary to make specific averment in the complaint that they were in charge of and responsible for the affairs of the company at the time of commission of the offence and that by virtue of their position, as Managing Director or a Joint Managing Director, as the case may be, they are liable to be proceeded with for offence punishable under Sec.138 of the N.I. Act. Crl.M.C.7324/17 - : 7 :- Further it is also stated in para 39 (vi) thereof that if the accused is a Director or an officer of a company, who signed the cheques on behalf of the company, then also it is not necessary to make specific averment in the complaint. In the instant case, the specific case in the complaint is to the effect that the petitioner (A-2) was the Managing Director of the company at the time of commission of the offence and further that the signatory of the dishonoured cheque is the petitioner (A-2), etc. For these reasons, it cannot be held that the prosecution against the petitioner (A-2) for the offence under Sec.138 of the N.I. Act is legally impermissible. 7. As regards the other contention of the petitioner that the complainant can approach the company court or the Official Liquidator, if he has a claim against the company, it is only to be observed that such remedy available to a creditor under the provisions of the Companies Act, 1956, by itself will not in any manner hamper the right of such a person if he is otherwise eligible and entitled to prosecute a complaint for offence punishable under Sec. 138 of the N.I. Act. There is nothing in law which prohibits a creditor, who has a remedy in any manner, from approaching criminal court instituting criminal complaint for offence punishable under Sec. 138 of the N.I. Act. 8. Therefore, the plea made by the petitioner that the impugned Anx.A-1 complaint is liable to be quashed, etc. cannot be acceded to. However, it is made clear that it is open to the petitioner to raise all his Crl.M.C.7324/17 - : 8 :- objections and contentions before the trial court. It is also made clear that this Court was constrained to make the abovesaid observations and findings only from the limited point as to whether or not, the complaint is liable to be quashed by exercising the powers under Sec. 482 of the Cr.P.C. It is thus ordered that none of observations or findings in this order, shall in any manner preclude the petitioner from raising his contentions and objections before the trial court, which the said court will have to consider and adjudicate on its merits. With these observations and directions, the Criminal Miscellaneous Case stands dismissed. sdk+ Sd/- **ALEXANDER THOMAS, JUDGE** ///True Copy/// P.S. to Judge